Rental Risks

Rental properties can be great ways to earn income — that’s why they’re called “income properties” in real estate parlance. However, of course, no investment is without its risks — and rental properties have plenty. What this means is that you should consider the potential pitfalls of your venture and start developing plans to counter them and adapt to them.

Owning real estate can be lucrative, because real estate properties can increase in value over time while also allowing you to generate income via rent. However, real estate can also drop in value, which means that real estate investors should always be ready to weather storms and accept short-term losses–or even cut losses and accept that they won’t make a profit at all on a particular property.

Renting for income represents a more steady stream of cash for property owners, but it has risks associated with it, too. The most obvious risk of owning a rental property is the risk of renting to a bad tenant. Tenants can be destructive forces on properties–a bad one might damage the space or decline to report key problems, delaying repairs and maintenance in ways that could hurt your bottom line. Tenants who refuse to pay rent become terrible expense for landlords, and the process of evicting tenants or taking them to court over damages can be expensive and inefficient.

However, there are ways to insulate yourself from these sorts of risks. You should screen your tenants with care, with background checks and credit checks. There’s no excuse not to do this–you can get a free rental application and background check system online, and partners like realtors can help you, too. You’ll also want to look into landlord insurance and other monetary protections for when things go wrong.

Still, you’ll need to understand that some amount of wear and tear on your property is unavoidable. Maintaining the property will be expensive, and there may even be times when the rental market makes it difficult to make good profits. Real estate investments can be rewarding, but they are still investments–and investments have risk.

Perhaps the most important thing that you can do to ensure that your plan is sound is to be careful about how much you invest. Rushing to invest as much money as possible early in your career is a good idea when the investments are diverse; putting all of your hard-earned cash into one business venture, however, is a much less sound decision. If you and your friends still want to pursue this idea, it may be a good idea to start things up a little later in your career than you planned. With financial safety nets like a good emergency fund, some fledgling retirement savings, and a base of stock and bond investments, your decision to put money into real estate will begin to look a lot less risky to your parents–and to you! This is in addition, of course, to doing the careful research you’ll need to do in order to answer key questions and determine that it’s the right time and the right place to get into the real estate market. Good luck.

“You’re always going to miss your chance, if you never take a risk.” – picturequotes.com